Economics, Econometrics and Finance
4 years ago

Euro Area Business Cycle Strongly Affected by Output-Inflation Relationship.

IMF Working Paper
Inflation and Output Comovement in the Euro Area: Love at Second Sight?
Michal Andrle, Jan Brůha, Serhat Solmaz

Paper Summary

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The article discusses how inflation and output in the euro area move together, especially during economic ups and downs. The researchers found that at business cycle frequencies, output and core inflation are closely linked, with inflation following changes in output by about half of its variance. This suggests that demand shocks play a significant role in the euro area's economic cycles.